Heinz Pushes Steel Aid Proposal Would Result In $120-million Refund

The economic transition from an old to a new federal tax code would be eased for Bethlehem Steel Corp. to the tune of $120 million if a proposed transition rule is approved by the U.S. Senate.

The steel industry proposal, pushed by Sen. John Heinz, R-Pa., is one of many so-called transition rules designed to ease the adjustment of business and individuals to a new tax system, if such a new system is enacted by Congress.

However, at least one senator yesterday objected to Heinz's effort and called for a special meeting of the Senate Finance Committee to consider the proposal.

The transition rules will become part of the Finance Committee's tax reform bill if approved by Finance Chairman Robert Packwood, R-Ore. However, no final list of rules has been produced yet by Packwood, and many of the proposed rules are still being drafted and revised, according to committee staff.

The Heinz transition rule would attempt to temper the blow to steel companies resulting from the elimination of the investment tax credit. Under current law, taxpayers are entitled to a 10 percent investment taxcredit for investment in machinery and equipment, but not buildings. Steel and other capital-intensive industries have relied heavily on this credit in their modernization efforts.

The Finance Committee's tax reform bill would repeal the investment tax credit as would the House tax reform measure passed last December. President Reagan also favors elimination of the credit. His administration estimates that repeal would generate $15 billion in 1986 and more than $30 billion in 1987.

Heinz contends that an outright repeal would unfairly penalize the steel industry.

The investment tax credit is usable only by those who pay taxes. Since the steel industry has suffered consistent and severe losses recently, steel companies have accumulated the credits but have no tax liability against which to use them.

Without the Heinz transition proposal or some other transition rule, the steel industry's credits would expire.

Bethlehem Steel, for example, would lose $240 million in unused investment tax credits, according to Art Roth, a company spokesman.

The Heinz proposal would allow the steel industry to carry back a portion of the credit to taxes paid 15 years ago.

The investment tax credit currently has a so-called carry-back provision which allows industries to apply the credit against taxes paid from three previous years. By carrying the credit back 15 years, the Heinz proposal allows only domestic steel companies to apply their credits to a tax period in which they generally were financially healthy.

The proposal would allow steel companies to apply an amount equivalent to 50 percent of their investment tax credits. For Bethlehem Steel, the 50 percent carry-back represents a $120-million pay-back by the federal government.

"It really amounts to a refund on taxes, which is an acceptable tax principle," Roth said. "We are certainly interested in this. We had been in favor of the earlier proposal by Sen. Heinz."

During the early tax debate in the Finance Committee, Heinz won approval of a provision that would allow industries to exchange unused investment tax credits for 70 cents on the dollar. However, that proposal ultimately was considered too costly and was dropped from the bill. Packwood too had proposed, and then discarded, a provision allowing industries to get a 30 percent discount on their unused credits.

"The overall concern was that too many profitable companies would be getting refunds," said Reba Raffaelli, a tax aide to Heinz. "That concern has been taken care of by our proposal."

The latest Heinz proposal would cost an estimated $500 million over five years, according to Raffaelli. The steel industry has about $1.4 billion in unused investment tax credits.

"It's certainly a provision for an industry which deserves special consideration," Heinz said of his proposal yesterday. "Anyone who has been in the steel communities in my state, whether in the west, east or central parts, knows the steel industry needs special consideration.

"The new tax bill treats industries like steel - those that are capital- intensive and not profitable - particularly harshly," he added. "This mitigates to some extent the harsh treatment under the tax bill."

But Sen. David Pryor, D-Ark., yesterday said the proposed rule circumvents the intention of the Finance Committee and "could bring the whole tax bill down on top of us."

Pryor, in a letter to Packwood, said the committee had indicated its opposition to this type of treatment of unused investment tax credits.

"We debated this matter at length in closed sessions and decided to drop it from the bill," Pryor said. "We had no idea what was in those transition rules until today. This is not merely a transition rule. This is a substantive change in the bill and a complete contradiction of the wishes of the majority of the committee."